Vnesheconombank Chairman Vladimir Dmitriev’s Interview to the Post of Russia Magazine

Vladimir Dmitriev:
Large-Scale Projects Like the One to Establish a Postal Bank Do Not Require Haste

Interviewed by Konstantin Suvorov

-What role a Postal Bank is going to play for your Bank, the Post of Russia and the country as a whole?

For the Bank for Development the project to establish a Postal Bank will be a top-priority one designed to modernize the Russian banking sector. By our estimates this project is going to be one of the largest projects in the Russian banking sector in the coming years. It should be noted that due to the current regional imbalances, the bulk of the Russian population, millions of Russians, have problem receiving top-quality banking services. Since it costs a lot of money to open and operate bank offices, the number of credit institutions operating on the Russian territory is much lesser than in European and even Latin American and Asian countries. For example, the number of banking service outlets per a million of people is 192 in Russia as compared to 806 in Brazil and the number of sales outlets per one bank in Russia is 22 whereas in Europe, America and Asia this indicator is twice higher. The following statistical data show that our primary objective is to make financial and banking services more affordable for general public. Only 20-25% of Russians have bank time deposits, less than a third use consumer credits and three percent use mortgage credits. Moreover, the Russian banking network is developing in the cities (for the most part in regional and provincial centers) where main financial flows are concentrated whereas in rural and remote areas these flows are diminishing. The Postal Bank joint investment project to be implemented by Vnesheconombank on the basis of OJSC Svyaz-Bank with the participation of the Post of Russia is designed to promptly rectify the current unfavorable situation and effectively remove the bottlenecks. I would single out two main objectives: first, we should remove constraints in making financial and communications services affordable to people in the regions through creating an appropriate infrastructure, second, we should fundamentally upgrade the Post of Russia technologically and expand its range of services. In our opinion, improved infrastructure of financial services would encourage Russians to save money in banks thus making it possible to raise additional money for the banking sector. I’d like to add that in implementing such a big investment project in the banking sector we hope to achieve synergetic effect: a Postal Bank to be established in cooperation with the Post of Russia would provide Russian citizens with new offices offering them access to various financial and communications services and by way of spreading banking infrastructure across the whole Russian territory the state would raise additional money of the Russian people for the Russian economy outside the banking sector. This would expand the project’s participants customer base and sales volume in part through providing new services.

The establishment of a new Postal Bank that would apply advanced financial technologies is sure to further automate banking services through introducing electronic payments, reducing cash flow in favor of non-cash transactions, using electronic card products and electronic payments. As a result, we’ll be able to create favorable conditions for improving the quality of banking services, especially in the regions where the said services are in short supply. In our opinion one of Vnesheconombank’s main tasks in the Postal Bank project is its participation in financing the Post of Russia’s modernization and technical re-equipment of it offices. By preliminary estimates, the said modernization under the Post of Russia’s Program “Development of the Postal Services Sector “ would cost more than 100 billion rubles in investments including on the terms of public private partnership. The Project’s implementation would make it possible to boost postal services efficiency as well as increase the Post of Russia’s earnings and profits.

-At present, The Post of Russia is a state-run enterprise which does not by law have the right to own bank shares. Should this problem be addressed by converting the Post of Russia into a joint stock company or by introducing changes to applicable legislation?

-You are quite right. The implementation of the project to establish a Postal Bank is complicated by a number of legal problems. So, if we are to integrate Svyaz-Bank with the Post of Russia we have to resolve a number of legal issues including those associated with the need to change applicable legislation, which regulates activities of unitary enterprises (the fact is that the Post of Russia is a Federal Unitary Enterprise). We’ll have to introduce changes to a number of Bank of Russia regulatory documents.

It’s quite obvious, that given the magnitude and complexity of our tasks, it’s not possible to change applicable legislation right now. So, a number of intermediate steps and stages are being considered now to move the project forward.

If we are to put in place an appropriate legal and institutional network for a Postal Bank to function, we’ll have to introduce relevant changes to five regulatory acts including such laws as “On State and Municipal Unitary Enterprises”, “On Postal Services”, as well as the government’s regulations “On Terminating the State’s Participation in Credit Institutions’ Charter Capitals” and two Bank of Russia Instructions – “On the Rules of Issuing and Registering Securities by Credit Institutions on the Territory of the Russian Federation” and “On the Procedure for Making Decisions by the Bank of Russia on State Registration of Credit Institutions and on Issuing Licenses for Conducting Banking Transactions.” This work is now being performed by the ministries and departments on the instructions of Deputy Prime Minister Segrei Ivanov. He heads the working group responsible for working out comprehensive measures for establishing a Postal Bank of the Russian Federation on the basis of OJS Svyaz-Bank.

-Postal banks operate in many countries of the world. Let’s for example remember success stories of Italy and Japan. A postal bank there is either a division of the postal service or is not incorporated in it formally. Which option is more preferable for Russia?

-Under Russia’s banking legislation (the Federal Law “On Banks and Banking”) a credit institution shall be a separate legal entity. It can’t be a division of other organization.

At the same time, a strategy and a business model of a Postal Bank is being worked out on the basis of foreign postal banks’ business experience including the successful experience of postal banks in Germany, Italy and Japan.

As a rule, postal banks abroad were established on the basis of postal service departments that offered financial services. But recent standard practice was to implement joint projects by the Post in tandem with banks to establish a separate legal entity responsible for offering banking services. Moreover, international practice shows that there is a tendency to separate banks from the Post. And there are a number of reasons for it including significant differences in terms of managing the Post and banking business, and the fact that a bank as a specialized institution is better at selling financial services.

-You said that the first stage of establishing a Postal Bank would cost 30 billion rubles.  How much would it cost to establish a “turnkey” Postal Bank?

-Depending on a chosen strategy, formats and the number of Postal Bank offices, total investment costs (buildings, technologies, equipment) are to be finalized. We’ll be able to answer this question in a more exact way after holding talks with our partner banks, which are to submit detailed financial project models for establishing a Postal Bank until June 15, 2010.

-What’s the percentage of state and private outside investments to be made for establishing a Postal Bank?

-I don’t know so far. This issue is being comprehensively analyzed and will be ultimately settled in the coming months.

-How long will it take to establish a Postal Bank?

-The project to establish a Postal Bank is tentatively scheduled to be launched no later than on January 1, 2011. The date of putting all Postal Bank divisions in place depends on the scale of the project and the terms of financing it. In our opinion a period of up to three years is optimal. Such large-scale projects do not require haste.

- What about the Postal Bank’s potential customers, are they going to be private individuals, small and medium-sized enterprises, big business?

-To my mind, general public, small and medium-sized enterprises, and of course the Post of Russia. Telecommunications sector companies including those serviced by OJSC Svyaz-Bank might become our target customers. This issue is being considered by specialists dealing with the project to establish a Postal Bank.

-What services are going to be popular with Postal Bank customers?

-International practice shows that for the most part post banks operate as ordinary universal banking institutions servicing various categories of customers and offering a wide range of banking products. As a rule, postal banks conduct various kinds of transactional operations (transfers and payments), opening and maintaining of current and savings accounts, extending small-size credits to private individuals and small and medium-sized enterprises. So, potential customers are most likely to be offered basic financial services. At the same time, if we are to more exactly determine a range of Postal Bank potential services, we need to conduct special marketing research. And taking into account the said research results, we’ll be able finalize the Bank’s product line.

-What conclusions did you arrive at after examining applications by claimants for participating in the project to establish a Postal Bank?

-In March of 2010, Vnesheconombank’s Supervisory Board as advised by the interagency working group reviewed five applications for partnership with Vnesheconombank in the project to establish a Postal Bank of the Russian Federation. I must say that we didn’t receive any ideal proposals. All applications had their pluses and minuses. On the short list of candidate partner banks are such leaders of retail banking as JSC Russian Standard Bank, JSC UniCredit Bank, OJSC NOMOS-Bank together with LLC HKF Bank.

Judging by the commercial banks’ proposals the general concept of the Postal Bank project hasn’t changed. By June 15, 2010, the listed banks are to submit their revised project implementation budget plans and determine the format and share of their participation in the project. After examining the said documents Vnesheconombank’s Supervisory Board will make a decision as to which bank to involve in the project on the terms of public private partnership.

-What’s the strongest point of the Postal Bank project?

-I’d like to say once more what I’ve already said at the start of my interview describing the importance of establishing a Postal Bank. The project’s primary goal is to offer affordable customer-friendly financial services to large sections of the population in all Russia’s regions. In order to achieve this objective the bank to be established would have an extensive network of more than 40 thousand offices as well as advanced technologies and expertise to be received from a chosen partner bank. So, we believe that the establishment of a Postal Bank is an important socially meaningful, state-run project.

PROFILE

Dmitriev Vladimir Alexandrovich

• Born August 25, 1953, in Moscow
• In 1975, graduated from the Moscow Finance Institute, specialty – “International Economic Relations”
• Doctor of Economics
• Corresponding member, Russian Academy of Natural Sciences
• 1975-1979 - State Committee of USSR Council of Ministers for Foreign Economic Relations, engineer
• 1979-1986 – Attachй, third secretary, USSR Foreign Ministry Department
• 1986-1987 - Institute of World Economics and International Relations, USSR Academy of Sciences, research worker
• 1987-1992 - USSR Embassy of USSR Ministry for Foreign Affairs, Second, First Secretary
• 1992-1993 - Russian Embassy of Russian Ministry for Foreign Affairs, First Secretary
• 1993-1997 – Deputy Chief Executive Officer, Russian Finance Ministry Department
• 1997-2002 - Bank for Foreign Economic Affairs of the USSR, First Deputy Chairman
• 2002-2004 - Bank for Foreign Trade of the USSR (OJSC), Deputy President - Chairman of the Board
• 2004-2007 - Bank for Foreign Economic Affairs of the USSR, Chairman
• From June 2007 – State Corporation “Bank for Development and Foreign Economic Affairs (Vnesheconombank)”, Chairman
• For his great contribution to the development of the Russian financial and banking system and many years of dedicated work Mr. Dmitriev was awarded the Order of Honor; the Medal of the Order “For Services to the Fatherland”, second degree; the Association of Russian Banks Badge of Honor “For Services to the Banking Community”; “Excellent Employee of Vnesheconombank” Badge’, his name is recorded in Vnesheconombank’s Book of Honor.